Visa and MasterCard join Russia’s National Card Payment System

The Russian government has decided to move all settlements under domestic control after the international payment systems blocked the cards of several banks in March 2014. Source: AP

International payment operators Visa and MasterCard have started processing domestic payments inside Russia’s new national processing system, launched in response to U.S. sanctions against Moscow that saw cards from several Russian banks blocked in 2014. Observers see the creation of the National Card Payment System as the first step towards an autonomous financial system in Russia.

Visa and
MasterCard have begun processing payments inside Russia’s domestic system. The international
payment systems joined Russia’s newly-created National Card Payment System on
April 1 in what can be considered the first step towards the creation of an
autonomous financial system in Russia.

"The
national system has already been introduced, quickly and at a little cost, and
it has fully resolved the problem of payments inside the country," says
Sergei Khestanov, professor of finance and banking at the Russian Presidential
Academy of National Economy and Public Administration.

If Visa
and Mastercard do not fulfill the requirements of the Central Bank, they will
have to pay a security deposit, whose size will be linked directly to the
turnover of the credit card systems. Morgan Stanley estimated the figure at
$950 million for Visa and $500 million for MasterCard.

The
Russian government has decided to move all settlements under domestic control after
the international payment systems blocked the cards of several banks in March
2014 following the imposition of sanctions on Russia by the U.S. in response to
Moscow’s takeover of Crimea.

The main difficulties

According
to Khestanov, processing Visa transactions through the national system should
be viewed as a compromise: The Russian government's control of the transactions
will strengthen, but the international systems will continue to operate in
Russia.

"The
potential of the development of the Russian cashless payment market is still
enormous," explains Anton Soroko, an analyst at Finam Investment Holding.

Visa
signed the agreement with the new system only on Feb. 19, 2015, while
MasterCard has been on board since Jan. 12, 2015.

For the
time being, experts are avoiding any clear-cut predictions of success, and say
that Visa's protocols are more complex than MasterCard's. "We will see if
this will be successful only after the infrastructure assumes the full
burden," says chief analyst at UFS IS Ilya Balakirev.

The next
stage should be the Russian national payment system's issuance of plastic
cards, which is slated for December 2015.

The
picture is further complicated by the emergence of Asian operators as an alternative
to western payment systems. Immediately after the introduction of sanctions
against Russia by the U.S., the Chinese bank card
system UnionPay entered the Russian market in April 2014, followed in March 2015 by Japan
Credit Bureau (JCB). By 2017 Russia is planning to issue about two million
UnionPay cards and three million JCB cards.

Banks are insuring themselves

Large
Russian banks have warned their clients of possible interruptions in the
servicing of payment cards. In particular, on March 30 the largest issuer of
banking cards in Russia, state-owned Sberbank (102 million cards issued),
started transferring internal Russian MasterCard transactions to the national
system.

Meanwhile,
Interfax cites Director of Banking Card Management and Cash Settlement Services
at Sberbank Rostislav Yanykin as saying that the transfer of Visa card
transactions will take up to two weeks.

The
traditionally conservative Raiffeisenbank was more pessimistic. "The
success of carrying out transactions in the given situation depends on several
participants of the settlements, including the National Card Payment System,
which is why it may take a while to solve the problem," said the
Raiffeisenbank press office.

Small
banks were the first to adopt the new system, with the St. Petersburg-based
Bank BFA announcing its full transference to the National Card Payment System
on March 27. "For the clients making transactions with cards will be as
before," said a spokesperson for BFA Bank.

On March
25 the Tatfondbank in Kazan (800 kilometers east of Moscow) announced its
successful testing of card transactions according to the national system.